The global economy has shown remarkable resilience in the face of sharp swings in 2025. Despite policy shifts, geopolitics, and rapid innovation, particularly around AI, growth has held up, and the impact of new technology has become increasingly visible across the private sector. This combination of disruption and durability sets the tone for 2026.

As we navigate the year ahead, several macro events are already on the horizon, including changes in Federal Reserve leadership and voting governors, ongoing effects of tariffs, and uncertainty over US trade policy. Success in this environment requires looking past sentiment and staying grounded in hard data and long-term fundamentals.

Our proprietary insights, informed by 270+ portfolio companies, ~13,000 real estate assets, 5,000 corporate borrowing relationships, and an extensive infrastructure portfolio, allowed us to deploy nearly $100 billion through 3Q25 and turn volatility into opportunity.

The Five Dynamics Shaping Markets

Our investment perspective this year centers on the five dynamics shaping markets: AI investment and productivity gains, solid but uneven growth, a cooling labor market, moderating inflation, and the declining global cost of capital. Together, they are creating an attractive backdrop for investors able to stay ahead of change and act with conviction.

Key Takeaways:

01 AI is rewiring the investment landscape, driving a multi-year CapEx cycle in data centers, power, chips, and connectivity — funded largely by cash flows, not debt — while laying the foundations for future productivity gains and investment opportunity.

02 Growth remains resilient but uneven, supported by strong corporate balance sheets, improving margins, moderating wages, and healthy consumer demand — though spending has been increasingly concentrated among higher-income households.

03 Cooling inflation is giving central banks room to lower interest rates, and the combination of falling borrowing costs and pent-up demand to transact is driving a rebound in deal activity that we expect to continue in 2026.

04 Private markets are positioned to benefit from these major megatrends, including AI, digital infrastructure, and energy transition. They are differentiated from public market alternatives through the platform scale, data accessibility, operational toolkit, long duration of capital, and structured approach they offer investors — creating opportunities for growth, durability, and downside protection in the current environment.

05 Across private equity, real estate, credit, and infrastructure, momentum is building, with expanding opportunity sets, improving exit markets, falling financing costs, and sector-specific catalysts creating a favorable backdrop in 2026.

The Main Thing: AI

AI is the most consequential force shaping the global economy today. Adoption is happening at unprecedented speed, with over 1 billion monthly active users of ChatGPT — up from fewer than 200 million just two years ago. While overall adoption has been rapid, the impact on productivity and margins is still in early stages, with far greater long-term potential.

This is fueling major investment in the infrastructure that makes it all possible, from data centers and chips to power grids and connectivity. There has been widespread debate about an “AI bubble.” But today’s dynamics differ meaningfully from past bubbles. The largest AI investments are being funded directly from the cash flows of many of the world’s strongest companies, underscoring both the strength of balance sheets and just how essential this spending has become.

Resilient, But Uneven Growth

Growth remains positive but bifurcated. We believe a generational investment opportunity is taking shape, fueled by technology, infrastructure, and energy transition spending, while interest rate-sensitive sectors like housing and manufacturing have lagged. AI-related spending, already a meaningful contributor to growth, is increasing.

As the world’s largest tech companies continue to raise CapEx spending plans, we see little evidence that this momentum will fade in the near term. Our view on the US economy has remained consistently constructive, informed by early signals in our portfolio. In 2025, year-over-year revenue growth in our US portfolio companies accelerated from 7% in Q1 to 8% in Q2 and 9% in Q3, alongside over 600bps of margin expansion over the past three years, from 29% to 35% as of Q3.

Shelter Indicates Further Easing

Inflation is easing beyond labor, a shift we have been seeing for more than two years. We have unique visibility into the single biggest component of inflation: shelter. Official shelter costs, which account for roughly 35% of the Headline Consumer Price Index (CPI), carry about a one-year lag relative to our real-time data. Our data shows shelter inflation running at roughly half the official rate.

Substituting our figure for the reported shelter number would place Headline CPI at 2.0% rather than 2.7%. This visibility has been especially valuable during periods when government data has been delayed or disrupted. Cooling shelter costs, combined with moderating wages, create a more predictable environment for renewed transaction activity.

Fueling Activity: Falling Cost of Capital

The cost of capital is falling as central banks lower interest rates. Globally, financing conditions have improved: Debt markets have reopened, business sentiment remains positive, and liquidity is being supported in part by roughly $40 billion in monthly Treasury bill purchases. With interest rates and borrowing costs moving lower, deal-making has been picking up.

Corporations are also benefiting from retroactive tax provisions under the One Big Beautiful Bill Act, which should support growth — particularly in sectors that lagged over the past year — and provide additional support to earnings. Our data reflects this improvement. Capital markets activity across our portfolio totaled $124 billion in Q3 across both debt and equity, signaling a meaningful pickup.

The Hidden Cost of Volatility Drag

The decline in volatility is a double-edged sword. While it may bring relief to investors, it also reduces the incentive to engage in defensive strategies. We have seen this phenomenon play out in our own portfolio, where a sharp drop in volatility has led to a corresponding decline in the use of hedging and other risk-reduction techniques.

As a result, we believe investors are underestimating the potential for market downturns and are not adequately preparing for the next downturn. This is particularly concerning given the current economic environment, where the combination of low interest rates, high valuations, and a strong economy has created a perfect storm of risk.

A 10-Year Backtest Reveals...

Our research has shown that the decline in volatility is a temporary phenomenon that is often followed by a sharp increase in market volatility. In fact, our 10-year backtest reveals that the average annual return of the S&P 500 during periods of high volatility is significantly higher than during periods of low volatility.

This is because high volatility is often a precursor to significant market events, such as changes in interest rates, shifts in monetary policy, or major economic disruptions. By understanding the relationship between volatility and market returns, investors can better prepare for the next downturn and make more informed investment decisions.

What the Data Actually Shows

Our data shows that the current decline in volatility is not a sustainable trend. In fact, we have seen a significant increase in market volatility in recent months, driven by a range of factors, including rising interest rates, trade tensions, and geopolitical uncertainty.

This increase in volatility is not limited to the US market. Our global equity portfolio has seen a significant increase in volatility, driven by a range of factors, including rising interest rates, trade tensions, and geopolitical uncertainty. This increase in volatility is a warning sign that investors should not ignore.

Three Scenarios to Consider

As we look ahead to 2026, there are three scenarios that investors should consider:

Scenario 1: The economy continues to grow at a moderate pace, with inflation remaining low and interest rates stable. In this scenario, investors should focus on income-generating assets, such as dividend-paying stocks and bonds.

Scenario 2: The economy experiences a sharp slowdown, with inflation rising and interest rates falling. In this scenario, investors should focus on defensive assets, such as gold and cash.

Scenario 3: The economy experiences a major disruption, such as a trade war or a global recession. In this scenario, investors should focus on assets that are resistant to market downturns, such as real estate and infrastructure.